Presented below is a composite list of Art. 79 cases reporting UNCITRAL Digest cases and other Art. 79 cases. All cases are listed in chronological sequence, commencing with the most recent. Asterisks identify the UNCITRAL Digest cases, commencing with the 9 January 2002 citation reported below. Cases are coded to the UNCITRAL Thesaurus.

English texts and full-text English translations of cases are provided as indicated. In most instances researchers can also access UNCITRAL abstracts and link to Unilex abstracts and full-text original-language case texts sourced from Internet websites and other data, including commentaries by scholars to the extent available.

For another analysis of Article 79 case law - also Art. 79 doctrine and legislative history - see Sonja A. Kruisinga, "(Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?", Intersentia (2004) 123-154.

(1) A party is not liable for a failure to perform any of its obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

(2) If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:

(a) he is exempt under the preceding paragraph; and

(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

(3) The exemption provided by this article has effect for the period during which the impediment exists.

(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party
who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.

(5) Nothing in this article prevents either party from exercising any right other then to claim damages under this Convention.

1. Article 79 specifies the circumstances in which a party "is not liable" for failing to
perform its obligations, as well as the remedial consequences if the exemption from liability
applies. Para. (1) relieves a party of liability for "a failure to perform any of his obligations" if
the following requirements are fulfilled: the party's non-performance was "due to an
impediment"; the impediment was "beyond his control"; the impediment is one that the party "could not reasonably be expected to have taken into account at the time of the conclusion of the contract"; the party could not reasonably have "avoided" the impediment; and the party could not reasonably have "overcome" the impediment "or its consequences".

2. Article 79(2) deals with the situation where a party engages a third person "to perform the whole or a part of the contract" and the third person fails to perform.

3. Article 79(3), which appears not to have been the subject of significant attention in case
law, limits the duration of an exemption to the time during which the impediment that justifies
the exemption continues to exist. Article 79(4) requires a party that wishes to claim an
exemption for non-performance "to give notice to the other party of the impediment and its
effect on his ability to perform". The second sentence of article 79(4) specifies that failure to
give such notice "within a reasonable time after the party who fails to perform knew or ought
to have known of the impediment" will make the party who failed to give proper notice "liable
for damages resulting from such non-receipt". Article 79(4) also appears not to have attracted
significant attention in case law, although one decision did note that the party claiming
exemption in that case had satisfied the notice requirement.[1]

4. Para. (5) makes it clear that article 79 has only a limited effect on the remedies
available to the party that has suffered a failure of performance for which the non-performing
party enjoys an exemption. Specifically, article 79(5) declares that an exemption precludes only
the aggrieved party's right to claim damages, and not any other rights of either party under the
Convention.

5. Several decisions have suggested that exemption under article 79 requires satisfaction
of something in the nature of an "impossibility" standard.[2] One decision has compared the
standard for exemption under article 79 to those for excuse under national legal doctrines of
force majeure, economic impossibility, and excessive onerousness [3] - although another decision
asserted that article 79 was of a different nature than the domestic Italian hardship doctrine of
eccessiva onerosità sopravvenuta.[4] It has also been stated that, where the CISG governs a
transaction, article 79 preempts and displaces similar national doctrines such as Wegfall der
Geschäftsgrundlage in German law [5] and eccesiva onerosità sopravvenuta.[6] Another
decision has emphasized that article 79 should be interpreted in a fashion that does not
undermine the Convention's basic approach of imposing liability for a seller's delivery of non-conforming goods without regard to whether the failure to perform resulted from the seller's
fault.[7] And a court has linked a party's right to claim exemption under article 79 to the absence
of bad faith conduct by that party.[8]

6. Many decisions have suggested that the application of article 79 focuses on an
assessment of the risks that a party claiming exemption assumed when it concluded the
contract.[9] The decisions suggest, in other words, that the essential issue is to determine whether
the party claiming an exemption assumed the risk of the event that caused the party to fail to
perform. Thus in one case, a seller had failed to make a delivery because the seller's supplier
could not supply the goods without an immediate infusion of substantial cash, and the seller did
not have the funds because the buyer had justifiably (but unexpectedly) refused to pay for
earlier deliveries. The seller's claim of exemption under article 79 was denied because the
buyer, as per the contract, had pre-paid for the missing delivery and the tribunal found that this
arrangement clearly allocated to the seller risks relating to the procurement of goods.[10] The risk
analysis approach to exemption under article 79 is also evident in cases raising issues
concerning the relationship between article 79 and risk of loss rules. Thus where the seller
delivered caviar and risk of loss had passed to the buyer, but international sanctions against the
seller's State prevented the buyer from taking immediate possession and control of the caviar
so that it had to be destroyed, an arbitral tribunal held that the buyer was not entitled to an
exemption when it failed to pay the price: the tribunal emphasized that the loss had to be
sustained by the party who bore the risk at the moment the force majeure occurred.[11] And
where a seller complied with its obligations under CISG article 31 by timely delivering goods
to the carrier (so that, presumably, risk of loss had passed to the buyer), a court found that the
seller was exempt under article 79 from damages caused when the carrier delayed delivering
the goods.[12]

7. Article 79 has been invoked with some frequency in litigation, but with limited success.
In two cases, a seller successfully claimed exemption for a failure to perform,[13] but in at least
nine other cases a seller's claim of exemption was denied.[14] Buyers have also twice been
granted an exemption under article 79 [15] but have been denied in at least six other cases.[16]

8. It has been questioned whether a seller that has delivered non-conforming goods is
eligible to claim an exemption under article 79. On appeal of a decision expressly asserting that
such a seller could claim an exemption (although it denied the exemption on the particular facts
of the case),[17] a court recognized that the situation raised an issue concerning the scope of
article 79.[18] The court, however, reserved the issue because the particular appeal could be
disposed of on other grounds. More recently, that court again noted that it had not yet resolved
this issue, although its discussion seemed to suggest that article 79 might well apply when a
seller delivered non-conforming goods.[19] Nevertheless, at least one case has in fact granted an
article 79 exemption to a seller that delivered non-conforming goods.[20]

9. Decisions have granted exemptions for the following breaches: a seller's late delivery
of goods;[21] a seller's delivery of non-conforming goods[22], a buyer's late payment of the price;[23]
and a buyer's failure to take delivery after paying the price.[24] Parties have also claimed
exemption for the following breaches, although the claim was denied on the particular facts of
the case: a buyer's failure to pay the price;[25] a buyer's failure to open a letter of credit;[26] a
seller's failure to deliver goods;[27] and a seller's delivery of non-conforming goods.[28]

10. As a prerequisite to an exemption, article 79(1) requires that a party's failure to
perform be due to an "impediment" that meets certain additional requirements (e.g., that it was
beyond the control of the party, that the party could not reasonably be expected to have taken
it into account at the time of the conclusion of the contract, etc...). One decision has used
language suggesting that an "impediment" must be "an unmanageable risk or a totally
exceptional event, such as force majeure, economic impossibility or excessive onerousness".[29]
Another decision asserted that conditions leading to the delivery of defective goods can
constitute an impediment under article 79;[30] on appeal to a higher court, however, the
exemption was denied on other grounds and the lower court's discussion of the impediment
requirement was declared moot.[31] More recently, one court appeared to suggest that the non-existence of means to prevent or detect a lack of conformity in the goods may well constitute
a sufficient impediment for exemption of the seller under article 79.[32] Yet another decision
indicated that a prohibition on exports by the seller's country constituted an "impediment"
within the meaning of article 79 for a seller who failed to deliver the full quantity of goods,
although the tribunal denied the exemption because the impediment was foreseeable when the
contract was concluded.[33]

11. Other available decisions apparently have not focused on the question of what
constitutes an "impediment" within the meaning of article 79(1). In those decisions in which a
party was deemed exempt under article 79, the tribunal presumably was satisfied that the
impediment requirement had been met. The impediments to performance in those cases were:
refusal by State officials to permit importation of the goods into the buyer's country (found to
exempt the buyer, who had paid for the goods, from liability for damages for failure to take
delivery);[34] the manufacture of defective goods by the seller's supplier (found to exempt the
seller from damages for delivery of non-conforming goods where there was no evidence the
seller acted in bad faith);[35] the failure of a carrier to meet a guarantee that the goods would be
delivered on time (found, as an alternative ground for denying the buyer's claim to damages,
to exempt the seller from damages for late delivery where the seller had completed its
performance by duly arranging for carriage and turning the goods over to the carrier);[36] seller's
delivery of non-conforming goods (found to exempt the buyer from liability for interest for a
delay in paying the price).[37]

12. In certain other cases, tribunals that refused to find an exemption use language
suggesting that there was not an impediment within the meaning of article 79(1), although it is
often not clear whether the result was actually based on failure of the impediment requirement
or on one of the additional elements going to the character of the required impediment (e.g.,
that it be beyond the control of the party claiming an exemption). Decisions dealing with the
following situations fall into this category: a buyer who claimed exemption for failing to pay the
price because of inadequate reserves of currency that was freely convertible into the currency
of payment, where this situation did not appear in the exhaustive list of excusing circumstances
catalogued in the written contract's force majeure clause;[38] a seller who claimed exemption
for failing to deliver based on an emergency halt to production at the plant of the supplier who
manufactured the goods;[39] a buyer who claimed exemption for refusing to pay for delivered
goods because of negative market developments, problems with storing the goods, revaluation
of the currency of payment, and decreased trade in the buyer's industry;[40] a seller who claimed
exemption for failing to deliver because its supplier had run into extreme financial difficulty,
causing it to discontinue producing the goods unless the seller provided it a "considerable
amount" of financing.[41]

13. The bulk of available decisions that deny a claimed exemption do so on the basis of
requirements other than the impediment requirement, and without making clear whether the
tribunal judged that the impediment requirement had been satisfied. The claimed impediments
in such cases include the following: theft of the buyer's payment from a foreign bank to which
it had been transferred;[42] import regulations on radioactivity in food that the seller could not
satisfy;[43] increased market prices for tomatoes caused by adverse weather in the seller's
country;[44] significantly decreased market prices for the goods occurring after conclusion of the
contract but before the buyer opened a letter of credit;[45] an international embargo against the
seller's country that prevented the buyer from clearing the goods (caviar) through customs or
making any other use of the goods until after their expiration date had passed and they had to
be destroyed;[46] a remarkable and unforeseen rise in international market prices for the goods
that upset the equilibrium of the contract but did not render the seller's performance
impossible;[47] failure of the seller's supplier to deliver the goods to seller and a tripling of the
market price for the goods after the conclusion of the contract;[48] failure of the seller's supplier
to deliver the goods because the shipping bags supplied by the buyer (made to specifications
provided by the seller) did not comply with regulatory requirements of the supplier's
government;[49] failure of a third party to whom buyer had paid the price (but who was not an
authorized collection agent of the seller) to transmit the payment to the seller;[50] an order by the
buyer's government suspending payment of foreign debts;[51] chemical contamination of the
goods (paprika) from an unknown source.[52]

14. Certain claimed impediments appear with some frequency in the available decisions.
One such impediment is failure to perform by a third-party supplier to whom the seller looked
as the source for the goods.[53] In a number of cases sellers have invoked their supplier's default
as an impediment that, they argued, should exempt the seller from liability for its own resulting
failure to deliver the goods [54] or for its delivery of non-conforming goods.[55] Several decisions
have suggested that the seller normally bears the risk that its supplier will breach, and that the
seller will not generally receive an exemption when its failure to perform was caused by its
supplier's default.[56] In a detailed discussion of the issue, a court explicitly stated that under the
CISG the seller bears the "acquisition risk" - the risk that its supplier will not timely deliver the
goods or will deliver non-conforming goods - unless the parties agreed to a different allocation
of risk in their contract, and that a seller therefore cannot normally invoke its supplier's default
as a basis for an exemption under article 79.[57] The court, which linked its analysis to the
Convention's no-fault approach to liability for damages for breach of contract, therefore held
that the seller in the case before it could not claim an exemption for delivering non-conforming
goods furnished by a third-party supplier. It disapproved of a lower court's reasoning which
had suggested that the only reason the seller did not qualify for an exemption was because a
proper inspection of the goods would have revealed the defect.[58] Nevertheless, another court
has granted a seller an exemption from damages for delivery of non-conforming goods on the
basis that the defective merchandise was manufactured by a third party, which the court found
was an exempting impediment as long as the seller had acted in good faith.[59]

15. Claims that a change in the financial aspects of a contract should exempt a breaching
party from liability for damages have also appeared repeatedly in the available decisions. Thus
sellers have argued that an increase in the cost of performing the contract should excuse them
from damages for failing to deliver the goods,[60] and buyers have asserted that a decrease in the
value of the goods being sold should exempt them from damages for refusing to take delivery
of and pay for the goods.[61] These arguments have not been successful, and several courts have
expressly commented that a party is deemed to assume the risk of market fluctuations and other
cost factors affecting the financial consequences of the contract.[62] Thus in denying a buyer's
claim to an exemption after the market price for the goods dropped significantly, one court
asserted the such price fluctuations are foreseeable aspects of international trade, and the losses
they produce are part of the "normal risk of commercial activities".[63] Another court denied a
seller an exemption after the market price for the goods tripled, commenting that "it was
incumbent upon the seller to bear the risk of increasing market prices ...".[64] Another decision
indicated that article 79 did not provide for an exemption for hardship as defined in the
domestic Italian doctrine of eccesiva onerosità sopravvenuta, and thus under the CISG a
seller could not have claimed exemption from liability for non-delivery where the market price
of the goods rose "remarkably and unforeseeably" after the contract was concluded.[65] Other
reasons advanced for denying exemptions because of a change in financial circumstances are
that the consequences of the change could have been overcome,[66] and that the possibility of
the change should have been taken into account when the contract was concluded.[67]

16. In order to qualify for an exemption, article 79(1) requires that a party's failure to
perform be due to an impediment that was "beyond his control". It has been held that this
requirement was not satisfied, and thus it was proper to deny an exemption, where a buyer paid
the price of the goods to a foreign bank from which the funds were stolen and never received
by the seller.[68] On the other hand, some decisions have found an impediment beyond the
control of a party where governmental regulations or the actions of governmental officials
prevented a party's performance. Thus a buyer that had paid for the goods was held exempt
from liability for damages for failing to take delivery where the goods could not be imported
into the buyer's country because officials would not certify their safety.[69] Similarly, an arbitral
tribunal found that a prohibition on the export of coal implemented by the seller's State
constituted an impediment beyond the control of the seller, although it denied the seller an
exemption on other grounds.[70] Several decisions have focused on the issue whether a failure
of performance by a third party who was to supply the goods to the seller constituted an
impediment beyond the seller's control.[71] In one decision, the court found that the fact defective
goods had been manufactured by a third party satisfied the requirement, provided the seller had
not acted in bad faith.[72] Where the seller's supplier could not continue production of the goods
unless the seller advanced it "a considerable amount of cash", however, an arbitral tribunal
found that the impediment to the seller's performance was not beyond its control, stating that
a seller must guarantee its financial ability to perform even in the face of subsequent,
unforeseeable events, and that this principle also applied to the seller's relationship with its
suppliers.[73] And where the seller's supplier shipped to the buyer, on the seller's behalf, a
newly-developed type of vine-wax that proved to be defective, the situation was found not to
involve an impediment beyond the seller's control: a lower court held that the requirements for
exemption were not satisfied because the seller would have discovered the problem had it
fulfilled it obligation to test the wax before it was shipped to its buyer;[74] on appeal, a higher
court affirmed the result but rejected the lower court's reasoning, stating that the seller would
not qualify for an exemption regardless of whether it breached an obligation to examine the
goods.[75]

17. To satisfy the requirements for an exemption under article 79, a party's failure to perform
must be due to an impediment that the party "could not reasonably be expected to have taken
... into account at the time of the conclusion of the contract". Failure to satisfy this requirement
was one reason cited by an arbitral tribunal for denying an exemption to a seller that had failed
to deliver the goods because of an emergency production stoppage at the plant of a supplier
that was manufacturing the goods for the seller.[76] Several decisions have denied an exemption
when the impediment was in existence and should have been known to the party at the time the
contract was concluded. Thus where a seller claimed an exemption because it was unable to
procure milk powder that complied with import regulations of the buyer's State, the court held
that the seller was aware of such regulations when it entered into the contract and thus took the
risk of locating suitable goods.[77] Similarly, a seller's claim of exemption based on regulations
prohibiting the export of coal [78] and a buyer's claim of exemption based on regulations
suspending payment of foreign debts [79]were both denied because, in each case, the regulations
were in existence (and thus should have been taken into account) at the time of the conclusion
of the contract. Parties have been charged with responsibility for taking into account the
possibility of changes in the market value of goods because such developments were
foreseeable when the contract was formed, and claims that such changes constitute
impediments that should exempt the adversely-affected party have been denied.[80]

18. In order to satisfy the prerequisites for an exemption under article 79(1), a party's
failure to perform must be due to an impediment that the party could not reasonably be
expected to have avoided. In addition, it must not reasonably have been expected that the party
would overcome the impediment or its consequences. Failure to satisfy these requirements
were cited by several tribunals in denying exemptions to sellers whose non-performance was
allegedly caused by the default of their suppliers. Thus it has been held that a seller whose
supplier shipped defective vine wax (on the seller's behalf) directly to the buyer,[81] as well as
a seller whose supplier failed to produce the goods due to an emergency shut-down of its
plant,[82] should reasonably have been expected to have avoided or surmounted these
impediments, and thus to have fulfilled their contractual obligations.[83] Similarly, it has been held
that a seller of tomatoes was not exempt for its failure to deliver when heavy rainfalls damaged
the tomato crop in the seller's country, causing an increase in market prices: because the entire
tomato crop had not been destroyed, the court ruled, the seller's performance was still
possible, and the reduction of tomato supplies as well as their increased cost were impediments
that seller could overcome.[84]

19. In order to qualify for an exemption under article 79(1), a party's failure to perform
must be "due to" an impediment meeting the requirements discussed in the preceding
paragraphs. This causation requirement has been invoked as a reason to deny a party's claim
to exemption, as where a buyer failed to prove that its default (failure to open a documentary
credit) was caused by its government's suspension of payment of foreign debt.[85] The operation
of the causation requirement may also be illustrated by an appeal in litigation involving a seller's
claim to be exempt under article 79 from damages for delivering defective grape vine wax . The
seller argued it was exempt because the wax was produced by a third party supplier that had
shipped it directly to the buyer. A lower court denied the seller's claim because it found that
the seller should have tested the wax, which was a new product, in which event it would have
discovered the problem.[86] Hence, the court reasoned, the supplier's faulty production was not
an impediment beyond its control. On appeal to a higher court, the seller argued that all vine
wax from its supplier was defective that year, so that even if it had sold a traditional type (which
it presumably would not have had to examine) the buyer would have suffered the same loss.[87]
The court dismissed the argument because it rejected the lower court's reasoning: according
to the court, the seller's responsibility for defective goods supplied by a third party did not
depend on its failure to fulfill an obligation to examine the goods; rather, the seller's liability
arose from the fact that, unless agreed otherwise, sellers bear the "risk of acquisition", and the
seller would have been liable for the non-conforming goods even if it was not obliged to
examine them before delivery. The court apparently found that, even if the seller had sold
defective vine wax that it was not obliged to examine, the default would still not have been
caused by an impediment that met the requirements of article 79.

20. Several decisions assert that article 79(1) -- in particular the language indicating that
a party is exempt "if he proves that the failure [to perform] was due to an impediment beyond
his control ..." -- expressly allocates the burden of proving the requirements for exemption
to the party claiming the exemption, thus also establishing that questions concerning the burden
of proof are matters within the scope of the Convention.[88] Such decisions also maintain that
article 79(1) evidences a general principle of the Convention allocating the burden of proof to
the party who asserts a claim or who invokes a rule, exception or objection, and that this
general principle can be used, pursuant to CISG article 7(2), to resolve burden of proof issues
that are not expressly dealt with in the Convention.[89] The approach and/or language of several
other decisions strongly imply that the burden of proving the elements of an exemption falls to
the party claiming the exemption.[90]

21. Article 79(2) imposes special requirements if a party claims exemption because its own
failure to perform was "due to the failure by a third person whom he has engaged to perform
the whole or a part of the contract". Where it applies, article 79(2) demands that the
requirements for exemption under article 79(1) be satisfied with respect to both the party
claiming exemption and the third party before an exemption should be granted. This is so even
though the third party may not be involved in the dispute between the seller and the buyer (and
hence the third party is not claiming an exemption), and even though the third party's obligations
may not be governed by the Sales Convention. The special requirements imposed by article
79(2) increase the obstacles confronting a party claiming exemption, so that it is important to
know when it applies. A key issue, in this regard, is the meaning of the phrase "a third person
whom he [i.e., the party claiming exemption] has engaged to perform the whole or a part of the
contract". Several cases have addressed the question whether a supplier to whom the seller
looks to procure or produce the goods is covered by the phrase, so that a seller who claims
exemption because of a default by such a supplier would have to satisfy article 79(2).[91] In one
decision, a regional appeals court held that a manufacturer from whom the seller ordered vine
wax to be shipped directly to the buyer was not within the scope of article 79(2), and the
seller's exemption claim was governed exclusively by article 79(1).[92] On appeal, the court
avoided the issue, suggesting that the seller did not qualify for exemption under either article
79(1) or 79(2).[93] An arbitral tribunal has suggested that article 79(2) applies when the seller
claims exemption because of a default by a "sub-contractor" or of the seller's "own staff", but
not when the third party is a "manufacturer or sub-supplier".[94] On the other hand, another
arbitral tribunal assumed that a fertilizer manufacturer with whom a seller contracted to supply
the goods and to whom the buyer was instructed to send specified types of bags for shipping
the goods was covered by article 79(2).[95] It has also been suggested that a carrier whom the
seller engaged to transport the goods is the kind of third party that falls within the scope of
article 79(2).[96]

22. Article 79(5) of the Convention specifies that a successful claim to exemption protects
a party from liability for damages, but it does not preclude the other party from "exercising any
right other than to claim damages". Claims against a party for damages have been denied in
those cases in which the party qualified for an exemption under article 79.[97] A seller's claim to
interest on the unpaid part of the contract price has also been denied on the basis that the buyer
had an exemption for its failure to pay.[98] In one decision it appears that both the buyer's claim
to damages and its right to avoid the contract were rejected because the seller's delivery of
non-conforming goods "was due to an impediment beyond its control", although the court
permitted the buyer to reduce the price in order to account for the lack of conformity.[99]

23. Article 79 is not excepted from the rule in article 6 empowering the parties to "derogate
from or vary the effect of" provisions of the Convention. Decisions have construed article 79
in tandem with force majeure clauses in the parties' contract. One decision found that a seller
was not exempt for failing to deliver the goods under either article 79 or under a contractual
force majeure clause, thus suggesting that the parties had not preempted article 79 by agreeing
to the contractual provision.[100] Another decision denied a buyer's claim to exemption because
the circumstances that the buyer argued constituted a force majeure were not found in an
exhaustive listing of force majeure situations included in the parties' contract.[101]

FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

80. [BELGIUMRechtbank van Koophandel [Commercial Court] Hasselt 2 May 1995, available
online at <http://cisgw3.law.pace.edu/cases/950502b1.html>] (a significant drop in the world
market price of frozen raspberries was "foreseeable in international trade" and the resulting losses
were "included in the normal risk of commercial activities"; thus buyer's claim of exemption was
denied: [BULGARIA Arbitration Award case No. 11/1996 of 12 February 1998, available online
at <http://cisgw3.law.pace.edu/cases/980212bu.html>] (negative developments in the market for
the goods "were to be considered part of the buyer's commercial risk" and "were to be reasonably
expected by the buyer upon conclusion of the contract); CLOUT case No. 102 [ICCInternational
Court of Arbitration, case No. 6281 of 1989, available online at
<http://cisgw3.law.pace.edu/cases/896281i1.html>] (when the contract was concluded a 13.16%
rise in steel prices in approximately three months was predictable because market prices were
known to fluctuate and had begun to rise at the time the contract was formed; although decided on
the basis of domestic law, the court indicated that the seller would therefore have been denied an
exemption under article 79 (see full text of the decision).

A tribunal that finds a party exempt under article 79 presumably believes the requirement that the
party could not reasonably have taken the impediment into account when entering into the contract
has been met, whether or not the tribunal expressly discusses that element. Although they did not
discuss the requirement, the following decisions held that the prerequisites for exemption under
article 79 had been met: CLOUT case No. 331 [SWITZERLANDHandelsgericht [Commercial
Court] Zürich 10 February 1999, available online at
<http://cisgw3.law.pace.edu/cases/990210s1.html>] (seller found exempt from damages for late
delivery of goods); [GERMANYAmtsgericht [Lower Court] Charlottenburg 4 May 1994, available
online at <http://cisgw3.law.pace.edu/cases/940504g1.html>] (buyer granted exemption from
liability for interest and damages due to late payment); [FRANCETribunal de Commerce [District
Court] Besançon 19 January 1998, available online at
<http://cisgw3.law.pace.edu/cases/980119f1.html>] (seller granted exemption from damages for
delivery of non-conforming goods, although the court ordered the seller to give the buyer a partial
refund); [RUSSIAArbitration Award case No. 155/1996 of 22 January 1997, available online at
<http://cisgw3.law.pace.edu/cases/970122r1.html>] (buyer that had paid price for goods granted
exemption for damages caused by its failure to take delivery).

A tribunal that finds a party exempt under article 79 presumably believes the requirements that the
party could not reasonably be expected to have avoided the impediment or to have overcome it
or its consequences have been met, whether or not the tribunal expressly discusses these elements.
Although they did not discuss these requirements, the following decisions held that the prerequisites
for exemption under article 79 had been met: CLOUT case No. 331 [SWITZERLANDHandelsgericht [Commercial Court] Zürich 10 February 1999, available online at
<http://cisgw3.law.pace.edu/cases/990210s1.html>] (seller found exempt from damages for late
delivery of goods); [GERMANYAmtsgericht [Lower Court] Charlottenburg 4 May 1994, available
online at <http://cisgw3.law.pace.edu/cases/950504g1.html>] (buyer granted exemption from
liability for interest and damages due to late payment); [FRANCETribunal de Commerce [District
Court] Besançon 19 January 1998, available online at
<http://cisgw3.law.pace.edu/cases/980119f1.html>] (seller granted exemption from damages for
delivery of non-conforming goods, although the court ordered the seller to give the buyer a partial
refund); [RUSSIAArbitration Award case No. 155/1996 of 22 January 1997, available online at
<http://cisgw3.law.pace.edu/cases/970122r1.html>] (buyer that had paid price for goods granted
exemption for damages caused by its failure to take delivery).

The Interpretive Turn in International Sales Law:
An Analysis of Fifteen Years of CISG Jurisprudence

A buyer may still be barred from recovering foreseeable damages if the defendant seller can prove that
non-performance was due to an impediment. Under Article 79, a party will not be held liable for
failure to perform his contractual obligations if he proves that "the failure was due to an impediment
beyond his control" and that he could not reasonably be expected to have taken the impediment into
account at the time of the conclusion of the contract or to have avoided or overcome it or its
consequences.[783] A party may also be excused from performance, under limited circumstances,
if the failure to perform is due to the failure of a third person.[784] As is the case with avoidance,
a party who fails to perform because of an impediment must provide notice to the other party within
a "reasonable time" after the party who fails to perform knew or ought to have known of the
impediment.[785] If the other party does not receive such notice, then the party who fails to
perform will be liable for damages that could have been avoided if proper notice had been given.
[786]

To be excused, the circumstances constituting the impediment must be [page 424] beyond the party's
control.[787] The burden of proof is on the non-performing party to prove the circumstances
entitling it to an excuse from liability.[788] For example, a seller who fully performed his
obligations under the contract, then placed the goods in the hands of a carrier, was not held liable for
the carrier's failure to deliver on time.[789]

As a general rule, however, national courts are not inclined to excuse a party for an impediment to
performance.[790] A party cannot rely on the exemption merely on the ground that performance
has become unforeseeably more difficult or unprofitable.[791] For example, in International
Chamber of Commerce Case 6281 of 1989,[792] an arbitration panel held that a seller could not
be relieved of the obligation to deliver the goods at the contract price due to a change in the market
price. It reasoned that the increase in the market price was neither sudden nor unforeseeable.
[793] In another case involving the sale of defective powdered milk, the German Supreme Court
held that the seller could only be freed from its obligation to pay damages by proving that the
infestation of the delivered milk could not have been detected and that the probable source of
infestation was outside of its sphere of influence.[794]

Other circumstances where parties were not granted an excuse under Article 79 include the buyer's
inability to obtain foreign currency,[795] "hardship" caused by an almost 30% increase in the cost
of goods,[796][page 425] inability to deliver the goods because of an emergency production
stoppage,[797] and financial difficulties of the seller's main supplier.[798] In cases of
shortage, a seller can only claim impediment if goods of an equal or similar quality are no longer
available on the market. In the case of price fluctuations, the seller is allocated the risk of increasing
market prices at the time of the substitute transaction. As is evidenced by these representative cases,
a high standard is set for a party to successfully claim excuse due to impediment. [page 426]

790.See, e.g., BGH VIII ZR 121/98, Mar. 24, 1999, supra note 95. The German Supreme
Court considered a seller's liability for the delivery of non-conforming goods when the seller was only
acting as an intermediary. In that case, the non-conformity was caused during the time the goods
were in the control of either his supplier or his supplier's supplier.

791.See generally Dionysios Flambouras, Remarks on the Manner in Which the PECL may be
Used to Interpret or Supplement Article 79 CISG (May 2002), available at
<http://cisgw3.law.pace.edu/cisg/text/anno-art-79.html> (the drafting history of the CISG reveals that
Article 79 is a stricter version of its predecessor which was criticized for excusing non-performance
too readily, such as where performance merely became more difficult). See generally FCF S.A. v.
Adriafil Commerciale S.r.l., BGE, supra note 646 (determinative facts do not reveal the existence of
circumstances that may constitute an unforeseeable or unavoidable impediment or an obstacle that
the party could not have reasonably overcome).

798. Schiedsgericht der Handelskammer, Hamburg 1996, 3229, Mar. 21, 1996, supra note 618.
See also, OLG Hamburg 1 U 167/95, Feb. 28, 1997, supra note 704 (sellers excuse was denied when
it did not receive goods from its supplier). The seller would only be able to claim impediment if
goods of an equal or similar quality are no longer available on the market; furthermore, it is also
incumbent on a seller to bear the risk of increasing market prices at the time of the substitute
transaction. Id. The court also held that although the market price had risen to triple the agreed-upon priced, this did not amount to a "sacrificial sale price," as the transaction (sale of iron-molybdenum from China) was said to be highly speculative. Id.

1. The similarities between the counterpart provisions of the CISG and the
UNIDROIT Principles are made obvious in the preceding comparative chart that,
although paying no heed to the order of the paragraphs of Article 79 CISG, places in
parallel the individual paragraphs of Article 7.1.7 of the UNIDROIT Principles on
International Commercial Contracts.

2. Aside from minor differences in syntax, the most noticeable difference is the absence of a
counterpart to CISG Art. 79(2) in the UNIDROIT Principles. This omission reflects the gap
between the assumed function that this paragraph was to take in the mind of its drafters and the
misunderstandings and complexities inherent in the distinction of excuses based on the failure of a
third person to perform. One can also notice the difference in phraseology between the last
paragraph included in both instruments: CISG Art. 79(5) is expressed in terms of limiting the
exemption to liability for damages, whereas UNDROIT Principles Art. 7.1.7(4) refers to the
availability of the non-breaching party, in case the other party's non-performance is excused, to
terminate, withhold performance or request interest on money due.

3. Another, less noticeable yet more significant, difference between both instruments is that the
UNIDROIT Principles also contain provisions on hardship (Chapter 6, Section 2, Articles 6.2.1,
6.2.2 and 6.2.3), a subject not specifically addressed in the CISG. This absence bears a
consequence in the interpretation of both texts, even though both seemingly address the same issue.

1. When the failure to deliver conforming goods results from the failure to perform on part of "a
third person whom (the seller) has engaged to perform the whole or part of the contract," it seems
sensible not to exempt the seller from liability because, except in extreme cases,[1] the seller is the
party who is in the best position to avoid or minimize non-compliance by someone whom he himself
"has engaged to perform all or part of the contract" [emphasis added]. Those whom the seller
"has engaged" include parties providing the seller with raw materials or semi-manufactured parts;
namely, those that may fall under the generic rubric of "ancillary suppliers" of the seller. They are
deemed to be within the seller's sphere of influence, and the seller is held responsible for the
conformity caused by those employed by him to perform the contract. In other words, the seller
cannot be exempted of liability vis-à-vis the buyer, even if those ancillary suppliers are in a position
to invoke successfully the defense of force majeure.

2. Some delegations, however, pushed for the inclusion of a second paragraph to Article 79 in
order to tighten the prerequisites of the excuse in case the seller engages a sub-contractor or a third
party who is not deemed to be within his sphere of influence.[2] Thus, CISG Article 79(2) seeks to
tighten the conditions under which a seller may claim the defense of impossibility or force majeure
whenever the defect in performance is attributed to an "independent" third person within the
meaning of Article 79(2), that is, a third person genuinely outside the seller's organizational
structure and sphere of control who, though not employed by the seller, is nevertheless "engaged"
by the seller.

3. Thus, whereas CISG Article 79(2) is meant to apply whenever the seller claims an exemption
of liability for damages due to defects in performance resulting from a failure to perform by a "third
person" (i.e., those who are independently engaged to perform the whole or part of the contract),
Article 79(1) addresses a situation where the seller claims an exemption of liability due to the
misconduct of a general supplier or some other "third person" employed by the seller.

4. The assumed function of CISG Article 79(2) is that the seller's liability stretches to answer for
the conduct of such "independent" third person unless the impediment was insuperable for the seller
and, additionally, the independent third person would himself qualify for exemption under Article
79(1). Thus, Article 79(2) is meant to increase the seller's liability, because the prerequisites for
exemption must be met cumulative by both the seller and the third person. From the buyer's
perspective this means, for all practical purposes, that the seller is in principle responsible for
defective performance incurred by independent third persons as if it were the seller's own conduct.
It appears then that the failure to perform by a third person, supposing such third person is within
the meaning of CISG Art. 79(2), will seldom lead to the exemption of he party to the main
contract.

5. Although it seems more difficult for the defaulting party to be exempted of liability for the acts
of an "independent" third person under Article 79(2), than to be exonerated for the delivery of non-conforming goods procured from or manufactured by a supplier whom the seller has engaged to
deliver conforming goods, the fact of the matter is that it is not easy to distinguish between both
types of "third persons". More important, under either the first or second paragraph of CISG
Article 79 the third person's failure to perform will seldom lead to the exemption of the party to the
main contract.

6. In those cases where a supplier chosen by the seller had failed to deliver the promised goods,
courts and arbitral tribunals held that the seller was not exempted, even in cases where the failure
to deliver was unforeseeable by the seller. Decisions vary, however, as to the method followed by
the courts to subsume the seller's exemption of liability under Article 79. Some courts place the
analysis of whether the seller qualifies for such an exemption under paragraph (1) of Article 79;[3]
other tribunals prefer to examine the seller's exoneration under paragraph (2) of Article 79;[4] and
still others opt for deciding the issue on the basis of Article 79 in the abstract.[5] Indeed, the analysis
undertaken by the Federal Supreme Court of Germany on March 24, 1999, suggests that those
differences are not so great: "From the buyer's point of view, it makes no difference whether the
seller produces the goods himself - with the consequence that the non-performance is generally
in his actual control so that, as a rule, a dispensation pursuant to CISG Art. 79(1) is generally
excluded - or whether the seller obtains the goods from suppliers ...".[6]

7. Therefore, even if a party's excuse due to the failure of an independent "third person" is likely
to be more difficult to be established under the "double force majeure" solution provided in CISG
Art. 79(2) than if the situation were solely appraised under CISG Art. 79(1), the latter provision
should suffice to take care of all possible scenarios of force majeure -- not only when the
defaulting party was to perform himself or with the aid of employees or his staff, but also whenever
his performance is conditioned upon performance by a third party. Even if that third party's failure
to perform may be excused vis à vis the defaulting party, the latter is still bound to avoid or
overcome such impediment vis-à-vis the non-defaulting party to the contract, so that dispensation
under Article 79(1) is excluded. This is so because the internal relationship between the third party
and the defaulting party is irrelevant to the other contracting party.

8. It does not make much of a difference, in other words, whether the excuse is sought to be
found under the first or second paragraph of Article 79, and even assuming that a distinction
between the different types of third parties were warranted, the difficulty in distinguishing between
an excuse grounded on the failure to perform by different types of third parties (e.g., employees,
agents, suppliers, sub-contractors, etc) is not worth the candle. In essence, the "impediment" to
which CISG Article 79(1) refers suffices to cover the situation where the lack of or defective
performance is owed to the act or omission of a third party.

9. It was a wise decision on part of the drafters of the UNIDROIT Principles Article 7.1.7 not
to carry over CISG Article 79(2) into the Principles. In principle, if the seller entrusts the
manufacture or delivery of conforming goods to another person, or if the buyer entrusts the
payment to a bank or an intermediary, both seller and buyer remain responsible with the other
party.[7] CISG Article 79(1) suffices to take care of the exceptional circumstances in seller or buyer
may be exempted of liability on account of the third person's defaulting performance.

1. When CISG Article 79(1) says that "a party is not liable ...", it actually means that the
defaulting party to be excused is not liable in damages; all the other remedies of the other party
remain unaffected according to CISG Article 79(5). Yet, the other remedies remain actually
available to the other party depend on the particular circumstances of the case and contractual
obligations arising under the contract.

2. Article 7.1.7(4) of the UNIDROIT Principles does not carry over the restriction found in
CISG Article 79(5) to the effect that the party who was to receive performance may be entitled
to exercise all his rights under the contract except to claim damages. Instead, the counterpart of
the UNIDROIT Principles phrases the potentially available remedies in less restrictive terms, stating
that the aggrieved party who was to receive performance from the defaulting party that succeeded
in establishing an excuse may nevertheless claim "a right to terminate the contract or to
withhold performance or request interest on money due". Indeed, remedies other than
damages are not limited to those listed in this provision of the UNIDROIT Principles, because the
right to reduce the price (CISG Art. 50) and to compel specific performance (CISG Arts. 46 and
62) may remain as available as the right to avoid or terminate (CISG Arts. 49 and 64) and the right
to collect interest on money due (CISG Art. 78).[8]

3. Indeed, there are good reasons to include price reduction as a possible available remedy in
a situation of a qualified exemption for the seller's failure to delivery conforming goods. This is one
of those instances where price reduction may well serve its purpose, which is not to compensate
the aggrieved buyer in damages, but to "preserve[e] the bargain between the parties and [...]
rebalance[e] the performance required by both sides ...".[9]

4. The exempting impediment clearly should not preclude the disappointed party from putting an
end to the contract, provided that the excused failure to perform amounts to a fundamental breach
(CISG Art. 25).If the non-performance were to be total and permanent, termination may be an
automatic consequence of the impediment, in which case it may not be necessary to require the
aggrieved party (which is the only party entitled to avoid the contract) to serve a termination notice
by a unilateral declaration.[10] Once avoidance has been declared, however, the effects of avoidance
insofar as "restitution" is concerned apply to both parties (CISG Arts. 81-84).

5. CISG Article 79(5) exempts the defaulting party of liability for damages in a negative form,
without referring expressly to the question whether the aggrieved party may be nevertheless entitled
to interest on the money that is owed to him.[11] The nature of the obligation to pay interest, as
expressed in the CISG, leads to the conclusion that an Article 79 exemption does not preclude the
aggrieved party from claiming and recovering interest. First, the purpose of the obligation to pay
interest under CISG Article 78, in addition to the obligation to pay monetary compensation for
damages, is to compensate the obligee for the financial cost experienced for not receiving payment
at the time it is due. Second, CISG Article 78 seems to distinguish between the obligation to pay
damages and the obligation to pay interest when it fixes the commencement of the obligation to pay
interest as of the moment there is delay in payment, even if the obligee has not suffered any damage
from such delay and the debtor is not liable. It is on the basis of this conceptual understanding that
UNIDROIT Principles Article 7.1.7(4) provides, though expressly, that the aggrieved party is
entitled to interest. UNIDROIT Principles Article 7.4.9(1) consistently states that "the aggrieved
party is entitled to interest ...whether or not the non-payment is excused."[12]

6. CISG Article 79(5) seems to warrant the right of the aggrieved party to claim specific
performance even if, as a result of an impediment, performance is likely to have become impossible
(e.g., the goods are destroyed or the transfer of funds has been prohibited). Of course there can
be no specific performance if the failure to perform turns on the fact that the total goods have
perished or the payment has been rendered impossible or illegal. Yet, where a temporary
impediment results in a partial non-performance or a delayed performance, then in such a case the
exemption effect is only for the period during which the impediment exists (CISG Art. 79(3);
UNIDROIT Principles Article 7.1.7(2)). In such a case, the right to performance continues to exist
and may actually encourage the parties to invest in efforts to overcome the impediments. When the
temporary impediment disappears and has no effect any longer, the exemption from specific
performance is no longer justified.

7. Both CISG Article 79(5) and UNIDROIT Principles Article 7.1.7(4) leave open the
possibility for the aggrieved party to demand specific performance, a claim that is not necessarily
affected by the impediment excusing the non-performance. To this extent, both texts do not rigidly
exclude the possibility of specific performance.[13] Whether the temporary impediment will merely
result in delayed performance or is likely to deprive the performance of most of its value is another
question concerning the impact of the temporary impediment in the overall performance, this
question is certainly not governed by this provision on force majeure and its consequences.

1. Another issue of significance in the comparison between both instruments is the absence in
CISG Article 79 of any reference to a situation, short of physical or legal impossibility, in which
performance by one party becomes extremely and totally unpredictably harsh. UNIDROIT
Principles Article 6.2.2 expressly provides for a situation of hardship, in addition to the force
majeure or impossibility scenario contemplated in Article 7.1.7, so that the defaulting party may
choose claiming one or the other excuse.[14] Did the CISG fail to include a provision on hardship
because the "impediment" referred to in its Article 79 may conceivably grant relief to a party who
finds himself or herself in a dire situation of excessive and unpredictable hardship to perform? Or
should the failure to include such a provision be interpreted as a rejection of the doctrine of
hardship under the CISG?

2. Scholarly opinion is divided on this question. Some commentators state that the wording of
Article 79 appears sufficiently flexible to include an extreme situation of unexpected hardship within
the meaning of "impediment".[15] Others opine that there is no place in the CISG for any relief on
account of economic hardship.[16] As to judicial decisions on this subject, there are too few and
inconclusive to this date to warrant a stable trend either excluding or including hardship within the
purview of CISG Article 79. Moreover, none of the reported decisions have extended the
exemption of CISG Article 79 to cases of economic hardship. However, it must be admitted that
no real "hard" cases of hardship have been presented so far.

3. The first issue to tackle is whether it is conceivable to find a situation of hardship calling for a
legal response of some kind, be it under a stretched interpretation of CISG Article 79 or the CISG
underlying general principles via Article 7(2) or under some national law that may eventually be
rendered applicable. Once we have found a proper hypothetical covering hardship, the next
question is to ascertain whether it is at all possible to deal with a genuine hardship situation via
CISG Article 79 or whether we should resign ourselves to the application of some national law
admitting relief in a situation of hardship (provided, of course that the applicable rule of private
international law would lead to the application of a domestic legal system contemplating relief for
hardship, which is not altogether certain).

4. There are not many real cases dealing with genuine situations of hardship in which courts have
found it fair to provide relief and well-grounded reasons explaining why the change in circumstances
was actually unpredictable and why one type of relief was more appropriate than others. This
notwithstanding, most commentators would not go as far as to deny the possibility that in very rare
cases, probably during truly exceptional historical periods (e.g., pre-war Germany during the
1920's) and really unstable economies or countries (e.g., hyperinflation in Argentina during the
1970's), judicial relief from a genuine hardship situation may be fairly justified. Admittedly, there
are those who think that "a contract always a contract;" and would not admit an inch of an
exception to the pacta sunt servanda. For those who share this point of view, it makes no sense
to explore any further whether CISG Article 79 could be relied upon to tackle a genuine situation
of hardship. This opinion goes on to examine the availability of a response on the assumption that
pacta sunt servanda is a principle rather than a rule, though a principle that ought to be respect
almost at all costs. It is at least conceivable that a defaulting party may be justified in obtaining some
type of relief despite the fact that the "impediment" falls short of a strict case of physical or legal
impossibility to perform.

5. Resorting to the type of scenarios designed in the comments accompanying UNIDROIT
Principles Article 6.2.2, one may envision a situation where a buyer "A", domiciled in State X,
concludes a contract of sale with a seller "B", domiciled in State Y. Payment is agreed to be made
in State Z within three months, upon delivery of the goods, in the currency of State Z. Let us
imagine that within a month of the conclusion of the contract a totally unpredictable political and
economic crisis, which the parties could not have reasonably taken into account, leads to a massive
devaluation of 80% of Z's currency, as a result of which the sale turns out extremely burdensome
for the buyer "A" and a gross windfall for the seller "B". Admittedly, it is not easy to ascertain
whether the change in circumstances could not have been reasonably foreseen. It is not an easier
task to distinguish between the risk of loss that every contracting party should be deemed to have
assumed and the extraordinary disastrous economic disadvantages amounting to a "limit of
sacrifice" (because there is indeed such a limit), beyond which the obligor should not be expected
to perform the contract as written. But if there is such a "truly hard hardship problem," i.e., a deal
unexpectedly and turned a "nightmare" for one party and a "steal" for the other, well, this is it.[17]

6. Assuming that the CISG applies to this contract, and also assuming that the foregoing
hypothetical falls squarely within a factually justified case of hardship, the most relevant question
to explore at this point is whether a case of economic hardship as this one should be settled by the
CISG, either by reading the word "impediment" in Article 79 to include economic hardship or by
concluding that there is a gap within the CISG to be filled by some underlying general principle via
the "governed-but-not-settled" gap-filling technique promoted in CISG Art. 7(2). If the CISG
applies, then it naturally preempts other potentially applicable domestic rules dealing with hardship.
But if the hardship question cannot be thus settled, then there is no alternative other than resorting
to domestic legal rules, hoping that the applicable law would provide for some risk-share allocation
of remedies. The alternative of resolving the hardship problem within the four corners of the CISG
is more palatable, because leaving the question to the conflict of law rules of the forum leads to a
great diversity of potentially applicable legal doctrines (impracticability, frustration, Wegfall der
Geschäftsgrundlage, eccesiva onerosità sopravvenuta, imprévision, etc.). Thus, the interpreter
who takes seriously the CISG's stated purpose of unifying the law of sales will probably exhaust
all technically available means to respond to the hardship problem within the "four corners" of the
Convention.

7. First, it is necessary to confirm, convincingly, that the hardship situation is not expressly or
impliedly excluded from the scope of the CISG. Second, it is important to examine the legislative
and drafting history of what is now CISG Article 79, to the extent that they may be considered
legitimate and valuable aid in its interpretation.

8. To the extent that termination or adjustment of a contract on grounds of hardship may be
regarded in some legal systems as a validity-related issue, it may be argued that the hardship issue
is excluded by CISG Article 4.[18] The argument deserves careful consideration, because in some
Scandinavian legal systems the issue of hardship appears to be approached as an issue of validity,[19]
and also because there is something to be said in favor of giving the defaulting party the benefit of
choosing among competing domestic doctrines of hardship. But this approach does not sound
convincing or persuasive. Unlike a situation of unconscionability (usury, lésion or gross disparity
of the performances at the time the contract is concluded), which clearly falls under the rubric of
validity, the hardship problem is associated in most legal systems with force majeure or
impossibility of performance, that is, a situation of exoneration or mitigation of liability due to events
subsequent to the conclusion of the contract, more than as a case of nullity or avoidance due to
infirmities or flaws affecting the contract from its inception.[20] Moreover, every benefit potentially
obtained from allowing national doctrines of hardship to compete for its application is more than
offset by the high price in terms of uniformity that is to be paid under this approach.

9. It is still necessary to trace the legislative and drafting history of the pertinent CISG provisions
to ascertain whether they are indicative of a firm intention to exclude hardship from the scope of
Article 79. The legislative history clearly indicates that Article 79 was drafted in response to the
criticism of Article 74 of the 1964 Uniform Law on International Sales, to the effect that "a party
could be too readily excused from performing his contract." But the criticism that ULIS Article 74
was insufficiently clear and subjective led to the substitution of the word "impediment" for
"circumstances," so that the conditions for exemption identified are more narrowly and objectively
under the CISG. But this legislative history is inconclusive to warrant the conclusion that CISG
Article 79 cannot exempt a party to perform, in whole or in part, when the impediment is
represented by a totally unexpected event that makes performance exceedingly difficult.

10. The exclusion (rectius: rejection) of hardship from the CISG would emerge, according to
other authors, from its drafting history.[21] Indeed, at the time the draft article that later became CISG
Article 79, the Working Group of UNCITRAL considered a proposed provision allowing a party
to claim avoidance or adjustment of a contract whenever facing unexpected "excessive damages".
After setting out the arguments in support of this proposal the Committee concluded by stating that
it was not adopted, not reappearing in subsequent discussions.[22]

11. Others have relied upon another fragment from the drafting history of the Convention, the
rejection of a Norwegian proposal linked to CISG Art. 79(3), to infer a rejection of the possibility
of extending the application of Article 79 to a situation of genuine hardship. When the issue of
temporary impediment came up for discussion, the delegation from Norway suggested the inclusion
of an additional provision to the effect that the temporary exemption from performing may turn into
a permanent one if, after the impediment ceases to exist, the circumstances had so changed that
performance would become manifestly unreasonable. The proposal gained significant support from
other delegations, but it as finally turned down after the French delegate raised his concerns that
introducing such a provision may be regarded as an acceptance of doctrines such as imprévision,
frustration of purpose, and the like.[23] Although the recollection of the discussions among the
participant delegates, or what should be made out of those discussions, is far from uniform, there
is no dispute that the issue of economic hardship was not specifically discussed in connection with
those proposals.

12. Speculation about what the intention of the drafting group might have been with regard to the
scope of application of CISG Article 79 is unlikely to be too accurate, especially when we are left
to our inferences from fragments in the "travaux préparatoires". Indeed, the dismissal of a
proposal which did not even address whether hardship should be given any space within the
Convention is no proper foundation upon which to build an argument on the "intention of the
legislator". If anything, the drafting history of the Convention evidences that the discussions were
not sufficiently conclusive on this question.

13. So, if Article 79(1) neither expressly or implicitly excludes the possibility of economic hardship
as an impediment that may exempt a party's failure to perform, and if it is accepted that a situation
of genuinely unexpected and radically changed circumstances, in truly exceptional cases, deserves
some legal response, then we are inclined to favor a broad interpretation of CISG Article 79 that
would preempt the application of a domestic rule on hardship, assuming that the applicable
domestic law provides for one. Thus, the next and final step is to ascertain the contours of at least
some guidelines as to what is to be understood by a genuine situation of "hardship" and,
immediately thereafter, speculate as to what may be the most appropriate remedy or relief after
hardship has been found to exist.

14. I do not think it is possible or even convenient to attempt a definition of hardship, beyond
accepting that the impediment may entail a situation of "economic impossibility" (wirtschaftlicheUnmöglichkeit) that, while short of an absolute bar to perform, imposes what in some legal
systems is conceptualized as a "limit of sacrifice" (äusseerste Opfergrenze) beyond which the
obligor cannot be reasonably expected to perform. It seems clear that in most cases market
fluctuations are not to be considered an "impediment" under CISG Article 79, because such
fluctuations are a normal risk of commercial transactions in general. Whether wild and totally
unexpected market fluctuations in goods or currency could ever become an "impediment" is
another matter. Indeed, the theoretical possibility of such radical and unexpected changes admits
the application of Article 79 in those rare instances as the one exemplified above.

15. As to the possible remedies following a finding of hardship, the analysis of this problem should
start by acknowledging that this is another "governed-but-not-settled" gap that needs to be filled
within the Convention. There are no "general principles underlying the Convention" from where to
extract the obligation of the parties to renegotiate the terms of the contract, as it would be most
likely the case if the parties had incorporated a hardship clause. Neither can one find such a widely
accepted general principle pointing to the possibility, in case negotiations fail, to "adjust," or
"revise" the terms of the contract so as to restore the balance of the performances.

16. For those who are not willing to resort to the principle of good faith buried in CISG Article
7(1) in order to find a balance of the performances,[24] CISG Article 79(5) may be relied upon to
open up the possibility for a court or arbitral tribunal to determine what is owed to each other, thus
"adapting" the terms of the contract to the changed circumstances. Other than the payment of
damages, a court or arbitral tribunal may order, if justified under the CISG, the termination of the
contract as of a certain date. Of course, it is impossible to require specific performance as called
by the contract, but a flexible method for the purposes of adjusting the terms of the contract may
be obtained by resorting to price reduction under CISG Article 50.[25]

[See also commentary by the author on this subject in John Felemegas ed., An International
Approach to the Interpretation of the United Nations Convention on Contracts for the
International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press
(2006) 236-246.]

FOOTNOTES

* Professor of Law, Parker School of Foreign and Comparative Law, Columbia Law School, New York.

1. For instance, if the supplier of the goods is the only available source to supply the goods, or when
supplies are unavailable to unforeseeable and extraordinary events that are not related to the typical
procurement risks assumed by a seller.

2. According to UNCITRAL's official records, tightening the conditions under which a seller could claim
exemption who sought to avoid a contract includes, among other consequences, "that a party should be
exempted from liability because he had chosen an unreliable supplier...". Commentary on the Draft
Convention on Contracts for the International Sale of Goods prepared by UNCITRAL's Secretariat, Official
Records, United Nations, New York, 1981 [hereinafter "Commentary on the 1978 Draft Convention"] § 23 at
379 par. 23 (motion by Denmark) and § 35 at 380 (comment by Norwegian delegate).

7. Compare European Principles of Contract Law ("PECL") Article 8:107 ("A party which entrusts
performance of the contract to another person remains responsible for performance"). See also Comments
and Notes on PECL Art. 8:107, Comment C, available at
<http://cisg.law.pace.edu/cisg/text/peclcomp79.html>.

8. Compare with PECL Art. 8:101, allowing for the aggrieved party's possibility of exercising any other
remedy with the exception of damages and performance (Where a party's non-performance is excused
under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except
claiming performance and damages).

9. See generally, Erika Sondahl, "Understanding the Remedy of Price Reduction - A Means to Fostering a
More Uniform Application of the United Nations Convention on Contracts for the International Sale of
Goods", 7 Vindobona Journal of International Commercial Law and Arbitration (2003) 255-276, at fn. 38,
also available at <http://cisgw3.law.pace.edu/cisg/biblio/sondahl.html>.

10. Compare with PECL Art. 9:303(4) (If a party is excused under Article 8:108 through an impediment
which is total or permanent, the contract is terminated automatically and without notice at the time the
impediment arises).

11. See, e.g., Dennis Tallon in Commentary on the International Sales Law: The 1980 Vienna Sales
Convention (ed. by M. Bianca and M.J. Bonnell, Milan, 1987) at 589, also available at
<http://cisgw3.law.pace.edu/cisg/biblio/tallon-bb79.html>, in favor of exempting the excused defaulting
party from the payment of interest on the ground that the payment of interests should be considered as part
of an award of damages).

12. Compare with PECL Arts. 8:101(2) and 9:508 (Delay in payment of Money) (Interest is owed whether or
not non-payment is excused under Article 8:108).

13.
Compare with PECL Art. 8:108(1) , providing that the aggrieved party may resort to any of the remedies
set by PECL Chapter 9, except claiming performance and damages.

15.
See, e.g., Dennis Tallon in Commentary on the International Sales Law Article 79 at § 3.2 (1987) ("[T]he
judge will have a natural tendency to refer to similar concepts in his own law. Thus, the judge of a socialist
country will have a restrictive approach to force majeure ... On the contrary a common lawyer will feel
inclined to refer to the more flexible notions of frustration and impracticability. In the Roman-German
system, the judge will reason in terms of force majeure ..."). See also M. J. Bonell, Force majeure e hardship
nel diritto uniforme della vendita internazionale, in Diritto del commercio internazionale 590 (1990)
(observing that by requiring that the obligor "could not reasonably be expected ... to have avoided or
overcome [the impediment] or its consequences" suggests that, at least in principle, the possibility should
be entertained that performance has become so onerous that it would be unreasonable to enforce it).

16. See, e.g., Barry Nicholas, who observed that exemption of liability on account of unexpected and
excessive economic hardship was "out of place" in a sales law. Progress Report of the Working Group on
the International Sale of Goods on the Work of its Fifth Session (A/CN.9/87, Annex III, reprinted in
UNCITRAL Yearbook V: 1974 (1975) at 66).

17. See Joseph Lookofsky, Walking the Article 7(2) Tightrope Between CISG and Domestic Law,
unpublished manuscript submitted to the symposium on "25 Years United Nations Convention on
Contracts for the International Sale of Goods (CISG)", Vienna, March 15-16, 2005 (on file with the author).

18.
See J. Lookofsky, Understanding the CISG in the USA (2d ed., 2004) § 2.6 and Joseph Lookofsky, "The
Limits of Commercial Contract Freedom Under the UNIDROIT 'Restatement' and Danish Law", 46
Am.J.Comp.Law 485, 496 (1998), also available at <http://cisgw3.law.pace.edu/cisg/biglio/lookofsky6.html>,
referring to the hardship provisions in the General Clause of the Danish Contracts Act, authorizing a court
to refuse enforcement or to adjust "any unreasonable contract or term, and that includes a term which
becomes unreasonable after the contract is made". Professor Lookofsky also refers to Dutch Civil Code
Article 6.258(1) as an illustration of a provision that appears to question the "validity" of a contract ("Upon
the demand of one of the parties, the court may modify the effects of a contract or it may set it aside; in
whole or in part, on the basis of unforeseen circumstances of such a nature that the other party, according
to standards of reasonableness and fairness, may not expect the contract to be maintained in unmodified
form. The modification or setting aside may be given retroactive effect.").

19. See, e.g., Tom Southerington, Impossibility of Performance and Other Excuses in International Trade,
Publication of the Faculty of Law of the University of Turku, Private law publication series B:55, also available at <http://cisgw3.law.pace.edu/cisg/biblio/southerington.html>. Southerington refers to Section
36(1) of the Finnish Contracts Act, which the author considers as a rule of validity akin to
unconscionability.

20. This seems to be the case of Italian law, whose Article 1467 of the Codice Civile and the scholarly
doctrine surrounding it has been taken as a model in several Latin American legal systems. A much
criticized 1993 decision by the Tribunale Civile di Monza entered (unnecessarily for the purposes of the
case before the court) to examine the legal nature of hardship under Italian law and its relationship with the
CISG. The Italian court stated that "... hardship is not a matter expressly excluded in Article 4 of the CISG ...
Dissolution of the contract for supervening excessive onerousness affects neither the validity of the
contract nor ownership over the goods ..."). Italy 14 January 1993 Tribunale Civile [District Court] Monza,
Nuova Fucinati v. Fondmetall International, case presentation including English translation available at
<http://cisgw3.law.pace.edu/cases/930114i3.html>.

21.
See, e.g., Barry Nicholas, who observed that exemption of liability on account of unexpected and
excessive economic hardship was "out of place" in a sales law. Progress Report of the Working Group on
the International Sale of Goods on the Work of its Fifth Session (A/CN.9/87, Annex III, reprinted in
UNCITRAL Yearbook V: 1974 (1975) at 66).

22. Report of Committee of the Whole I Relating to the Draft Convention on the International Sale of Goods
(A/32/17, annex I, paras. 458-60), reprinted in UNCITRAL Yearbook VIII: 1977 (1978), 57). See also John
Honnold, Documentary History of the Uniform Law for International Sales 350 (1989).

23.
See A/Conf.97/C.1/SR.27 at 10. The Norwegian proposal led to the deletion of the word "only" in Article
79(3), so that even if the initial and temporary impediment vanishes, the resulting change of circumstances,
which may well be of an economic nature, may turn into another impediment leading to that party's
exemption of liability.

The rules dealing with situations of changed or supervening contractual circumstances are
oriented on the two basic concepts of hardship and force majeure - they constitute
exceptions to the cardinal canon of pacta sunt servanda and ameliorate its strictness.

Hardship refers to the performance of the disadvantaged party having become much more
burdensome, but not impossible, while force majeure refers to the performance of one
party's obligations that has become impossible, even on a temporary basis.[2]

The solution to this issue cannot come by direct reference to domestic legal systems[4] that
differ greatly from each other in regard to rules of hardship or imprévision,[5] as this would
produce divergent results in the interpretation and application of the Convention. This
would contravene the uniformity mandate of article 7(1) CISG.

Also no reference to domestic laws can be attempted under the gap-filling operation of
Article 7(2), as the legislative history of Article 79 excludes the possibility of the existence
of a relevant gap.[6]

As the term impediment is not defined, an interesting question is whether the hardship
provisions in Articles 6:111 (Change of Circumstances) and 8:108 (Excuse due to an
impediment) of the Principles of European Contract Law can be invoked to expand the
meaning of impediment found in the CISG to include cases of economic or commercial
hardship.[7]

The legislative history of Article 79 also indicates that a party cannot rely on the
exemption merely on the ground that performance has become unforeseeably more
difficult or unprofitable.[9]

The UNCITRAL debates show that the CISG drafters were opposed to allowing
commercial or economic hardship as an excuse for non-performance and that this was the
reason for adopting the requirement of an impediment as a precondition for relief in place
of the more liberal ULIS test of a change of circumstances.[10]

It is clear in the travaux préparatoires that the purpose of Article 79 CISG is to set
definite limits on the promisor's liability for breach of contract and that the word
"impediment" represents a unitary conception of exemption from liability in contracts
governed by the Convention, as opposed to other theories of imprévision or hardship that
are based on "changed circumstances".[11]

Although the wording of Article 79(5) would allow a claim for performance in situations
where obligations are physically impossible to fulfill, it is thought that the general belief
expressed at the Vienna Conference that judgment for a physically impossible performance
would neither be sought nor obtained should lead to a reasonable limitation of Article
79(5) CISG.[13]

The term "impediment" was used in the drafting of the Convention to denote an external
force that objectively interferes with performance of the contract and renders performance
impossible.[14]

The creditor of the obligation in question may still require specific performance of the
obligation under Article 79(5) CISG. This solution, however, may not appear satisfactory
in the situations where performance has been rendered impossible, i.e., the subject matter
of the performance no longer exists (the goods have perished) or the performance would
be excessively onerous or expensive (e.g., necessity for expensive salvage operation or
subsequent illegality[15]).

One suggested approach to the problem in such extreme situations is to admit a "limit of
sacrifice" beyond which the promisor of the obligation could not reasonably be expected
to perform his obligation.[16]

In a leading case on article 79 CISG, the German Supreme Court identified the existing
debate among scholars as to whether: "CISG Art. 79 encompasses all conceivable cases
and forms of non-performance of contractual obligations creating a liability and is not
limited to certain types of contractual violations and, therefore, includes the delivery of
goods not in conformity with the contract because of their defectiveness"; or "whether a
seller who has delivered defective goods cannot rely on Art. 79 CISG at all."[17]

It is arguable that an interpretation based on the plain meaning of the language in Article
79 CISG would suggest that a seller's obligation to deliver goods in conformity with the
contract under Art. 35 may also be conceivably excused due to an impediment under Art.
79(1).

According to Professor Schlechtriem, "under very narrow conditions - impediment also
includes 'unaffordability'" (id.). Schlechtriem explains that "[i]t is imperative, in [his]
opinion to treat radically changed circumstances as 'impediments' under Article 79 in
exceptional cases in order to avoid the danger that courts will find a gap in the Convention
and invoke domestic laws and their widely divergent solutions."[21]

In contrast to the single paragraph found in the Convention (see Art. 79(1) CISG),[22] the
Principles deal with the issue of change of circumstances in a quite thorough way,
providing not only a basic statement of principle (see Article 6:111(1) PECL) and the
operational parameters of the concept (see Article 6:111 (2) PECL), but also the
mechanism for the adaptation or termination of the contract by the court (see Article
6:111(3) PECL).

It is also clear that the effect of the PECL provisions follow a different scheme, because
they entitle the party whose performance has become "excessively onerous because of a
change of circumstances" to request re-negotiation of the contract, with the support of the
court and even its intervention if the parties fail to reach agreement. The adaptation of the
contract by the judge, however, is not expressly allowed by the CISG, and must therefore
be regarded as impossible in that context.[23]

For an interesting comparison see also Dionysios Flambouras, "The Doctrine of Impossibility of
Performance and Clausula Rebus Sic Standibus in the 1980 Convention on Contracts for the International
Sale of Goods and the Principles of European Contract Law - A Comparative Analysis" 13 Pace
International Law Review 261-293 (Fall 2001).

See also, e.g., Nuova Fucinati v. Fondmetall International, Italy 14 January 1993, [District Court Monza],
CLOUT case no. 54, also available at <http://cisgw3.law.pace.edu/cases/930114i3.html>. In that case, an
Italian court held that although the Convention did not apply to the contract, even if Art. 79 CISG had
applied, nonetheless the court would have rejected the seller's request for dissolution on the basis of
supervening excessive onerousness (caused by a market price increase by 30%) by reading "impediment"
to mean "impossible", as per the domestic law (Article 1463 of the Italian Civil Code). In the court's
opinion, the seller could not rely on hardship as a ground for avoidance, since the Convention did not
contemplate such a remedy in Article 79 or elsewhere in the CISG.

It seems that the Italian court would have dealt with the matter as one that was governed but not expressly
settled by the Convention and it would have resolved the issue by turning to the conflict of law rules of the
forum, under Art. 7(2) CISG.

It is arguable that this approach to the interpretation of impediment does not promote uniformity.
Similarly, divergent results would be produced by the possible introduction of "hardship" as a general
principle of the Convention under Art. 7(2); a possibility that would be contrary to the intention of the
drafters and the legislative history of the Convention.

The court also spoke on many other CISG-related issues in the case (issues of validity, international
character of the Convention, conformity of the goods, damages, mitigation; see A.H. Kritzer, Editorial
Comments in the online presentation of the court judgment, ibid.)

Also note that a proposal aimed at incorporating an Article in the Convention that allowed a party to
"claim an adequate amendment of the contract or its termination" on account of "excessive difficulties"
was expressly rejected by UNCITRAL's Working Group, see J. Honnold, Documentary History of the
Uniform Law for International Sales (1989), at 350.

Cf. Tom Southerington, "Impossibility of Performance and Other Excuses in International Trade",
available on-line at <http://www.cisg.law.pace.edu/cisg/biblio/southerington.html>. In the Southerington
article, the author points out that under Section 36(1) of the Contracts Act (Finland), which contains rules
on validity of contracts, a term of a contract governed by Finnish law (the Sale of Goods Act and the
CISG, since Finland is a Contracting State) may be adjusted or set aside if that term "is unconscionable or
its application would lead to unconscionability". Under Finnish internal law, a term of the contract or
even the entire contract may be adjusted or declared discharged if it is considered to be unconscionable.

There is a concern that the rationale for excluding issues of validity from the realm of the CISG is linked
to differences in approach to the issue by the divergent legal traditions. It is the Southerington thesis that,
in a contract governed by the CISG, it is possible that a domestic doctrine of hardship may coexist with
the UN Sales Convention via Article 4(a) of the CISG, i.e., in circumstances in which there is a domestic
validity rule on unconscionability such as the Section 36(1) of the Contracts Act (Finland). This is
arguably an indirect way of removing issues from the sphere of the Convention and resorting to national
laws and as such it undercuts uniformity in the application of the international sales law.

Cf. P. Schlechtriem suggests a possible basis for arguing that the problem of hardship and adjustment of
the sales contract is matter governed by the Convention, see "Transcript of a Workshop on the Sales
Convention", 18 Journal of Law and Commerce (1999) 191-258, excerpt available at
<http://www.cisg.law.pace.edu/cisg/biblio/workshop-79.html>. The Schlechtriem argument refers to the
remedy of price reduction under CISG Art. 50 as "a kind of adjustment of the contract to reflect a
disturbed balance between performance on one side and obligation on the other side. The defects in the
goods, or the non-conformities of the goods, constitute a disturbance of the equilibrium or balance of the
exchanged performances." Id., at 237. Schlechtriem's argument for the use of the principle underlying
Art. 50 "as a springboard to develop a general rule of adjustment in hardship cases" would entail that the
solution comes from within CISG, thus eliminating divergent results in the interpretation and application
of the Convention's provisions.